Flipkart's small town push for Big Billion sale

Flipkart’s team handling the crucial smartphone category did a survey among customers to know what they are looking for in terms of products, offers, and prices.Mugdha Variyar&Varsha Bansal | ET Bureau | September 22, 2017, 08:10 IST

NEW DELHI: A few weeks before the Big Billion Day's sale began, Flipkart’s team handling the crucial smartphone category did a survey among customers to know what they are looking for in terms of products, offers, and prices, according to Arvind Charanyan and Abhaya Srivatsan, members of Flipkart’s smartphones team. Both were perched on a mattress at their head office in Bengaluru two days before the sale began on September 20, looking sleep-deprived.

“For the first time, we opened a survey on our app and website to see what consumers wanted this year. We got over 200,000 responses in 3-4 days, where consumers told us the exact offers and discounts they were looking for,” said Charanyan, who is associate director for the smartphone category.

Several of the more than 200,000 respondents listed a few common demands: phones with longer battery life, better space (ROM) over speed (RAM), and a price range of Rs 4,000 to Rs 6,000. Their focus was more on specifications than on brands.

What was interesting was that many of the respondents were from small cities and towns. Flipkart took note of that. For this year’s Big Billion Days sale, the online marketplace has introduced about 10 smartphones in the Rs 3,000-5,000 price range as compared to just two last year. It also worked closely with Chinese smartphone maker iVoomi to introduce multiple handsets in this range.

“We went deeper in understanding what the customers wanted and whatever they wanted, we are offering two times of that. If customers want Rs 500 off, we are giving Rs 1,000 off,” Ayyappan R, who leads Flipkart’s smartphone category, told ET on the night the online marketplace’s annual flagship sales kicked off.

This is the Flipkart of 2017. With about $4 billion raised in funds this year, unlike last year it does not have to worry about if it will have enough capital to battle Amazon India’s war chest. Its annualised gross merchandise volume (GMV) is growing again, and was pegged at around $6.5 billion a few weeks before the sale began, up by more than 60% as compared to last year when GMV was relatively flat. This gives Flipkart a comfortable lead over Amazon India, especially with its domination of the smartphone and fashion categories.

Flipkart is also a much leaner organisation with around 8,000 employees now, as compared to about 15,000 at the beginning of 2016. Clearly, Flipkart is not an underdog this year.

Customer acquisition and increasing traffic, where Flipkart lags Amazon India, have become more critical for the online retail major over driving profitability. The battle between the two companies is shifting to acquiring the next set of internet users, beyond the top 30 million net-savvy buyers mostly found in the large metro cities.

“A large portion of our customer acquisition will be the SEC-B and SEC-C (the middle segment of Indian consumers) customers. About 70% of new customers will be from this profile,” said Smrithi Ravichandran, who heads BBD sales, predicting triple-digital growth in new customers shopping on the platform compared to the last festive season.

Amazon India has made its move to capture the loyalty of the country’s top layer of internet customers with its subscription service Prime, which accounts for more than one-third of all the orders made on the platform. The company is also aggressively catching up in terms of total customers—more than 100 million now as compared to Flipkart’s 135 million. To put this in context, Amazon India began operations a little over 4 years ago in June 2013, while Flipkart is celebrating it 10th anniversary this year.

As strategic investors including Chinese internet conglomerate Tencent, US marketplace eBay and Japan’s SoftBank Corp become large shareholders in Flipkart, they would not like the homegrown e-commerce major to fall behind on this metric (customer base). For these investors, data is the new oil.

There is a reason why acquiring new customers is important for Flipkart’s investors, who have now pumped into the company a total of about $7 billion, valuing it at nearly $14 billion.

“Only way there can be a 5-6 times multiplier at the valuation and stage at which Tencent and SoftBank have invested is if there is an expansion in the pie. Unless Flipkart acquires new customers, that is not possible,” said Rutvik Doshi, director at Inventus Capital Partners.

Experts tracking the online commerce industry say that the primary driver behind events like Big Billion Days is customer acquisition. That was not a priority for Flipkart last year as it was busy defending its market share on a budget. All registered customers are not necessarily buyers. Of Flipkart’s 135 million customers, about 60% have bought at least one product on the platform in the last 12 months. Sale events can bring back customers who have been dormant or moved to other platforms.

“Ratio of repeats (repeat purchases) to new was higher in 2016. This year, we will see a higher base of new customer adoption, mainly because of our efforts to get a larger share from tier 2 and tier 3 (towns and cities) as well as telecom penetration,” said Ravichandran.

PREPARATIONS BEGAN IN OCTOBER... 2016The sports-themed first floor of Flipkart’s 11-storeyed head office in Bengaluru was palpable with stress and energy but also exuding confidence on the eve of the company’s five-day festive sales. Employees had been bunking at the office for several days leading to the event. While most of them were glued to their laptop screens making last-minute checks and tests, some were planning their wish-lists. “We will be so busy once the sale begins. So we have all kept our wish-lists ready,” said an employee from the fashion category .

Large screens were erected for the teams to track hourly progress of sales in their specific categories. Employees from the fashion, large appliances, and home and furnishing categories were huddled around the screens, which showed numbers going off the charts soon as the clock struck 12 am on September 20. The home and furnishing team was the first to achieve its hourly target which was followed by peals of applause.

“All kinds of counters have been set up and each category has planned their hourly and daily targets,” said Ram Papatla, vice president for product management at Flipkart, mounting his white-coloured Big Billion Days cap.

After flagging off the sale, chief executive Kalyan Krishnamurthy, who was a managing director at Flipkart’s largest investor Tiger Global Management till late last year, was sitting in the the main control room to watch the sales numbers coming in from across the country.

Krishnamurthy had rejoined Flipkart in June last year as head of category management (he was chief financial officer in an earlier stint), and is widely credited for the company’s victory over Amazon India during last year’s festive sales. In January, Krishnamurthy was elevated to the post of Flipkart CEO, replacing cofounder Binny Bansal who became Group CEO.

Krishnamurthy seemed confident and relaxed despite Flipkart’s ambitious goal of more than doubling last year’s BBD sales. “We are looking at a 70-30 lead (over Amazon India), not just with this BBD but over the next couple of years,” he said. Preparations for this year’s Big Billion Days began soon as the previous edition was over, he said.

PATH TO MIDDLE INDIAFlipkart’s strategy during last year’s festive sales was to sell high-value items through affordability initiatives like product exchange and payments through nocost equated monthly instalments (EMIs).

For this year, the company’s focus is on adding customers, especially from Middle India (or non-metro cities). According to data collated by R edSeer Consulting, Flipkart scored higher in tapping into the fast-growing non-metro market, while Amazon had a slight lead in the metro cities, during the first two quarters of this year.

Online retailer Shopclues that has been focused on this demographic believes companies need a specific DNA and execution ability to crack such a market.

“You cannot execute for tier1 and tier 3 customers in the same way. Flipkart and Amazon may be targeting the tier 3 and tier 4 customers but how can you give these customers only one-off aspirational products and not the selection they are looking for?” said Radhika Aggarwal, chief business officer at ShopClues.

Targeting lower-income customers has meant that Flipkart has had to tweak product selection across categories, not just in smartphones.

In fashion, which is its second-largest category by sales, product selection has been expanded by more than three times. Nearly half the selection in women’s fashion is in unbranded products, while in men’s one-third is unbranded.

As a result of the surge in customers from non-metro cities (60% of customers during last BBD were from Tier 2 and Tier 3), Flipkart’s data analytics team has been able to glean significant information to understand the buying patterns of this new spectrum of online shoppers. Flipkart is moving forward with personalization as a strategy and offering products to customers based on their previous purchase patterns.

“There are customers who have locationpersonalisation and there are customers who have credit-personalisation. There is also personalisation around life-stage,” said Mayur Datar, principal data scientist at Flipkart. “There are around 40 insights that we are playing around with,” Papatla said. Serving customers at different corners of the country also means making changes to the supply-chain, which has to be both fast and cost-efficient. Flipkart expects to make 1.2 million shipments daily in the days following BBD.

This year, Flipkart is doubling down on alternative delivery models by appointing different last-mile delivery agents.

Flipkart is also working with more than 5,500 last mile agents as compared to 3,000 last year. “Safe to say that more than 20% of the orders, or one in five, will be fulfilled by this channel. Maybe we can get close to one in three,” said Rohit Sharma, vice-president (operations and design), at Flipkart’s logistics arm, Ekart.

Driving rapid growth in the customer base across geographies will not be easy for Flipkart going forward, as the numbers shared by the company reflect.

For instance, during BBD 2016, Flipkart registered a 50% year-on-year growth in the number of pin-codes from where it received orders in the first 12 hours of the sale. This year, that number stands at 40%. Analysts tracking India’s ecommerce sector say that over the last 3-5 years, the space has grown with customer acquisition through deals, discounts and advertising.

“There was a time when investors were starting to get worried and were pulling away. That was evident during 2016. Given that (Flipkart) have enough capital now to back their customer acquisition strategy, they are going all out to do so,” said Devangshu Dutta, chief executive, Third Eyesight, a consulting firm with a focus on consumer products.

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